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Highlights
- Consumer sentiment rose 5.3% in November, building on October’s 6.2% increase.
- Optimism about future finances and economic outlook reached post-pandemic highs.
- Consumer confidence in falling mortgage rates hits the highest level since 2016.
Australian consumer confidence surged in November for the second consecutive month, reaching its highest level in two and a half years, according to the Westpac-Melbourne Institute consumer sentiment survey. The index rose by 5.3% in November after a 6.2% increase in October, indicating a gradual shift towards optimism as pressures on household finances appear to ease.
The consumer sentiment index reached 94.6, signaling that while pessimism remains, it is diminishing. Notably, future financial expectations and the economic outlook surpassed the 100 mark for the first time since the COVID-19 pandemic, a significant milestone in consumer sentiment.
Matthew Hassan, Senior Economist at Westpac, highlighted the factors behind the improving sentiment: "Consumers are seeing some further easing in the pressure on family finances, are no longer concerned about the risk of further interest rate rises, and are becoming more confident about the economic outlook."
Easing Rate Concerns Boost Optimism
The Reserve Bank of Australia’s (RBA) decision to keep interest rates steady at 4.35% this month has contributed to the more positive outlook, with financial markets largely anticipating that the next rate adjustment will be a cut, albeit likely in 2025. This optimism is reflected in the survey results, with the share of consumers expecting future mortgage rate declines now at its highest point since 2016.
This shift in rate expectations has had a visible effect on family finances and spending intentions. Survey findings show that the measure of family finances compared to a year ago climbed 6.8%, while finances for the year ahead rose by 4.4%. Moreover, confidence in the economic outlook for the coming year surged 8.7%, with the five-year outlook rising by 6.5%.
Positive Indicators for Retailers and Real Estate
The upbeat sentiment appears promising for both retailers and the real estate market as the holiday season approaches. The survey’s “time to buy a major household item” index rose 3.2% in November, indicating that more consumers feel ready to make significant purchases. This is good news for retailers as they prepare for the Christmas shopping period.
In the housing market, the “time to buy a dwelling” index jumped 11.3%, signaling an increase in consumer interest in home purchases, likely supported by easing mortgage rate concerns. Additionally, respondents reported feeling less anxious about job security, further reinforcing the trend of rising confidence.
Uncertain Impact of U.S. Election
However, a notable shift in sentiment was observed after the recent U.S. presidential election, in which Donald Trump won, creating a degree of market uncertainty. While the long-term impact on Australian consumer confidence remains unclear, the survey findings suggest that, for now, consumer optimism is largely driven by positive domestic economic indicators and reduced rate pressures.
